Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
iHeartMedia (IHRT)
Market Cap: $434.8 million
Occasionally featuring celebrity hosts like Ryan Seacrest on its shows, iHeartMedia (NASDAQ:IHRT) is a leading multimedia company renowned for its extensive network of radio stations, digital platforms, and live events across the globe.
Why Are We Out on IHRT?
- Muted 4.2% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
iHeartMedia’s stock price of $2.55 implies a valuation ratio of 7.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than IHRT.
Vail Resorts (MTN)
Market Cap: $4.99 billion
Founded by two Aspen, Colorado ski patrol guides, Vail Resorts (NYSE:MTN) is a mountain resort company offering luxury experiences in over 30 locations across the globe.
Why Are We Bearish on MTN?
- Sluggish trends in its skier visits suggest customers aren’t adopting its solutions as quickly as the company hoped
- Poor free cash flow margin of 9.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
Vail Resorts is trading at $140.17 per share, or 21.7x forward P/E. Read our free research report to see why you should think twice about including MTN in your portfolio.
Bausch + Lomb (BLCO)
Market Cap: $6.10 billion
With a nearly 170-year history dedicated to vision care and eye health innovation, Bausch + Lomb (NYSE:BLCO) develops and manufactures a comprehensive range of eye health products including contact lenses, pharmaceuticals, surgical devices, and consumer eye care solutions.
Why Do We Think Twice About BLCO?
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- 8.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $17.09 per share, Bausch + Lomb trades at 16.8x forward P/E. Dive into our free research report to see why there are better opportunities than BLCO.
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.